This post was originally published on this site
As the stock market tumbles and Treasury yields sink to record lows on fears of the economic impact from the coronavirus outbreak, BofA Securities provided its clients with a list of the most defensive REITs with the highest yields to help provide some protection.
REITs, or real-estate investment trusts, make their money from the leasing of properties they invest in, and investors in REITs benefit from relatively high and steady dividend payouts, which tends to help reduce share-price volatility.
Given REITs’ higher yields, they often act as a bond proxy, meaning equity investors can use REITs to track a rise in bond prices and a drop in interest rates.
Being defensive doesn’t mean REIT stocks aren’t expected to fall, but rather that it can act as a harness as they should fall less than the broader stock market. The SPDR Real Estate Select Sector exchange-traded fund XLRE, -1.71% has declined 2.1% over the past three months through Friday afternoon, while the S&P 500 index SPX, -1.70% has dropped 6.8%. The REIT ETF’s dividend yield is 3.13%, while the implied yield for the S&P 500 is 2.08%, according to FactSet, and the yield on the 10-year Treasury note TMUBMUSD10Y, 0.767% is 0.773%. See Bond Report and Market Snapshot.
Although REITs aren’t immune to weakness in the economy, especially if it leads to drop in real-estate values and demand for leases, which would then impact dividend payouts, BofA Securities analysts identified some types of real-estate assets that would be the least hurt in an economic downturn brought on by the spread of COVID-19:
Datacenters — “There is no evidence of correlation between GDP growth and data center leasing activity,” BofA analysts wrote. “Data centers are necessary for corporate internet continuity. COVID-19 could drive greater use of internet shopping and over-the-top video.”
Grocery-anchored strip centers — “Grocery visits will remain essential and goods are mainly, or can be sourced, domestically so limited supply-chain risk,” analysts wrote. “Side tenants provide services for the local community that are likely to remain in demand.”
Medical office buildings, hospital and life science — “Operators would benefit from increased patient visits,” the analysts wrote.
Self storage — “No direct impact on property type usage,” analysts wrote. “Often considered a risk-off sector due to consistent tenant demand but will watch vacancy risk of corporate users.”
Towers (for wireless carriers) — “Defensive with long-term lease contracts and no human interaction at sites,” BofA wrote. “We expect wireless carriers to maintain their [capital expenditures] with mobile data demand usage growing 30%-40% per year.”
With that in mind, here is BofA’s list of the most-defensive, highest yielding REITs the firm covers. All the stocks are rated buy:
| Company | Ticker | REIT sector | Dividend yield |
| Brixmor Property Group Inc. | BRX, -0.54% | Grocery-anchored strips | 6.34% |
| Regency Centers Corp. | REG, -2.05% | Grocery-anchored strips | 4.02% |
| Digital Realty Trust Inc. | DLR, -1.25% | Datacenters | 3.57% |
| Extra Space Storage Inc. | EXR, -0.48% | Self storage | 3.34% |
| Federal Realty Investment Trust | FRT, +0.44% | Grocery-anchored strips | 3.53% |
| CyrusOne Inc. | CONE, -0.58% | Datacenters | 3.37% |
| Crown Castle International Corp. | CCI, -0.87% | Towers | 3.04% |
| QTS Realty Trust Inc. | QTS, -1.76% | Datacenters | 3.38% |
| Alexandria Real Estate Equities Inc. | ARE, -1.16% | Life Science | 2.62% |
| American Tower Corp. | AMT, -0.25% | Towers | 1.58% |
| Equinix Inc. | EQIX, -1.29% | Datacenters | 1.80% |
| BofA Securities, FactSet | |||
